Corporate governance, capital and risk-taking in savings banks

Luis Otero-González, Dildora Ibrajimova, Milagros Vivel-Búa, Rubén Lado-Sestayo

Abstract


Purpose: This paper analyzes the impact of bank corporate governance and capital on risk-taking during the period 2004-2011, focusing on Spanish saving banks.

Methodology: This paper uses a dynamic panel data modeling and the system Generalized Methods of Moments (GMM) as a method of estimation.

Findings: The results highlight the importance of bank ownership nature and show the positive association between risk and Spanish savings banks. Furthermore, widely held banks tend to induce bank managers to increase risk-taking. The empirical evidence in this paper also contradicts the logic of prudent bank behavior which implies reserving more loan provisions during periods of rapid credit expansion. In addition, the amount of capital is found to be essential in the crisis period and all equity indicators were equally informative.

Originality: Several researches in finance attempt to explain the risk-taking behavior of banks and identify precise indicators of banks’ fragility This issue became especially prevalent following the recent financial crisis which has had a dramatic impact on the banking and financial sector of most countries. This research contributes to the existing literature by presenting unpublished evidence of Spanish banks risk taking. Note that despite the importance of the issue, there are few empirical studies and the most of these are not referred to this particular subject.

Keywords: regulation, risk, bank, corporate governance, capital.


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References


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